Whether or not you’re buying a home anytime soon, knowing the essential requirements and qualifications for a mortgage is a necessity for all adults. The process of getting a mortgage loan is much easier and faster if you have the requirements ready. So, if you plan to start looking at the best mortgage loan rates in Utah or anywhere else soon, there are requirements and qualifications that you need to have:
Mortgage lenders have varying qualifications set for their borrowers, but here is a list of the must-haves that are required from every borrower:
- Stable source of income. One of the first things that you need to ensure when planning to buy a house is your income. Lenders will want to know if you can afford to pay the loan back, which can be proved by a stable and steady income. Your income can come from salary, bonuses, commissions, alimony or child support, and other acceptable sources.
- Moderate debt-to-income ratio. The lower your debt-to-income ratio is, the better your application will look from the lender’s perspective. A lower ratio indicates that you have more income to spread for all of your financial obligations.
- Fair or good credit score. Your credit score also plays a significant role in mortgage applications. This will help lenders determine if you are a good payer or not, and thus decide if they want to lend to you. The higher your credit score is, the better the choices you will have for loans and houses.
- Downpayment. A downpayment is not always required to buy a house, but it secures that you have equity. Generally, a 20% downpayment is a good value. Paying no to minimal downpayment will most likely have you paying more in monthly payments (and a more expensive loan).
The document requirements for a mortgage loan
To find out if you qualify for a loan, you can apply for a pre-qualification or pre-approval. The process is usually free across lenders and banks.
Requirements for pre-approval
The pre-approval process is necessary to make sure you can afford the loan, and typically requires the following:
- Paycheck stubs (last 30 days)
- W2 or I-9 forms (last two years)
- Bank statements
- Proof of other assets
- Property information (of the house you want)
Requirements for application
If you are pre-approved, you can start preparing for the actual application. Here are some of the requirements that you can expect:
- Proof of income. To avoid dishonest borrowers from making false claims about their earnings, lenders require proof of income, such as tax returns, pay stubs, bank statements, and W2s or 1099 forms.
- Proof of downpayment. You can show a lender that you have enough money for the downpayment through savings or checking accounts, trust accounts, cash value life insurance, 401(k)s, IRAS, and other acceptable sources.
- Home appraisal. Lenders need to know the value of the home you plan to buy so they can base your application on that price.
- Insurance. You are generally required to have title insurance and homeowner’s insurance.
Applying for a mortgage is not easy, and that’s because buying a home is a big responsibility. Nevertheless, knowing the necessary qualifications and requirements is a must to make the whole process easier for you and the lender.